How did AstraZeneca make the Pfizer bid a Harry vs. Voldemort story?

Once again, Pfizer ($PFE) has upped its offer for AstraZeneca ($AZN), and once again, the U.K. company has rejected it. Reading the tea leaves, analysts have pointed out the change from "significantly undervalues" to "undervalues," and the absence of the word "unanimous" from the board's official rebuff. The media is polling top AstraZeneca shareholders, looking for hints about which might push for deal--and how hard.

Meanwhile, the company's official mouthpieces--Pfizer CEO Ian Read and AZ Chairman Leif Johansson--are each trying to paint the other as villain of the day:

"We do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price," Read said.

"Pfizer's approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization," Johansson said in a statement. "Pfizer has failed to make a compelling strategic, business or value case."

We can quote some analysts' calculations about how much room Pfizer really has to further ratchet up its offer: Mark Schoenebaum at ISI Group figures a break-even for Pfizer at $97 per share, for instance. Leerink Partners' Seamus Fernandez sees at least $4 billion in cost savings off the deal. We can tell you that Jupiter Fund Management, a top 30 AstraZeneca investor, is peeved that the board refuses to come to Pfizer's negotiating table. And that Aberdeen Asset Management, another top investor, thinks Pfizer could do better on price.

AstraZeneca Chairman Leif Johansson

But we won't pretend to offer any secret insight into whether the deal is alive, dead (permanently) or dead (temporarily, till Pfizer has the chance to return with another offer after a 6-month waiting period). That knowledge is, for now, limited to Pfizer and AstraZeneca higher-ups, and the London City investors that stand to lose or gain from a Pfizer-AstraZeneca combination.

What is striking about the situation--and informs the back-room dealings--is the way the deal narrative turned into a Clash of the Titans, hero-against-villain story. News accounts, political statements, television commentary, you name it: AstraZeneca has successfully put forth the story that Pfizer would sweep in, slash jobs and costs, and stall important, lifesaving science. Even Leerink's Fernandez, who appears to support a deal, also notes that the new company would be best off with CEO Pascal Soriot and AZ's research folks in charge of their pipeline.

To anyone who will listen, Cambridge researchers and MedImmune leaders and, of course, R&D chief Mene Pangalos, point out the fragile nature of drug research, the importance of talented scientific minds--and a megamerger's ability to disrupt their labs, distract everyone in sight and run off top scientists. Those brainwaves can't be downloaded onto the nearest server for use by their replacements. Their drug projects, then? Stalled at best. Possibly dead.

That story lives partly in thanks to the British media, which has a flair for melodrama and a sharp ear for the telltale quote. And it's partly because of Pfizer's own history of questionable megamergers. In the case of its most recent--Wyeth--even the big-deal-cheerleader McKinsey & Co. deemed it a failure.

Number crunchers have turned out stats on those deals--duly quoted in the news, including by us--that suggest all the money spent on megamergers was a poor investment, with little yield market-cap-wise. R&D productivity certainly suggests that the deals didn't help, and probably hurt. One could argue that the Warner-Lambert acquisition paid off, considering that it brought along the best-selling drug of all time, Lipitor. But even that is up for debate; the Harvard Business Review has suggested that even that deal wasn't worth the price.

So on one side, you have AstraZeneca preaching science, loyalty, long-term thinking and (to be frank) a lot of airy-fairy sales predictions vis-a-vis its pipeline. On the other, Pfizer is promising better R&D productivity (which history seems to contradict), $1 billion or so in yearly tax savings and some serious cost-savings from cuts and layoffs.

Jedi Knights versus Stormtroopers? Harry versus Voldemort, maybe?

How durable that story proves to be is the question. As Pfizer's latest offer--some $119 billion, give or take a billion on exchange rate--nears the point where reasonable people turn from drama to dough, AstraZeneca could be seen as the brat who refuses to make nice with a playground rival. And as the offer percolates through the news cycle--and through the ranks of top investors--the AZ versus Pfizer story may become a mere negotiating ploy, a way for Johansson, CEO Pascal Soriot and their team to reap a bigger, better deal.

As Derek Lowe at In the Pipeline notes, this could be the first case of "a Company That Has Fought Off Pfizer." Or not. Plenty of debate on that ahead, as the clock ticks toward that May 26 do-or-die deadline--on this round of Pfizer bidding, at least.

- read the AstraZeneca release
- get the basics from Bloomberg
- see more from Reuters
- read the In the Pipelinepost

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